SCORing an “A”

After much speculation, beleaguered French reinsurer SCOR has been rated a strong “A-”, with a stable outlook by Standard & Poor's.

The announcement signals the French reinsurer's return to the ranks of its competitors. SCOR has credited its “loyal clients” and a no holds barred “Back on Track” recovery plan for the turnaround. “The group has been significantly affected by deterioration within its US liability reserves primarily from underwriting between 1997-2001,” said primary credit analyst Marcus Rivaldi. “However, Standard & Poor's believes the group has proactively dealt with its major legacy issues.”

SCOR's current position is supported by a strong expected capital adequacy (due to €1.4bn of fresh equity investment in recent years), improved quality of capital, a good aggregate reserve position (following the creation of additional reserves), and limited usage of retrocession. A withdrawal from credit derivatives and a proactive commutation programme have also aided its return to profit.

“We view SCOR's capitalisation as strong,” confirmed Rivaldi. “Capital adequacy is expected to improve further moving comfortably into the ‘A' range owing to at least two factors. Number one, medium term earnings prospects are positive and, number two, SCOR is continuing with its successful active legacy liability commutation programme in order to reduce the level of potential volatility of held reserves.”

2004 saw a return to profitability with the group reporting net profit after tax of €68.7m, compared to 2003's net loss of €314m. The profit was achieved despite additional reserves following the World Trade Center ruling. And the group's recovery plan is far from over. “Project New SCOR” was launched in June and involves the creation of a 100% owned subsidiary combining all SCOR's non-life reinsurance business (in a similar mould to SCOR VIE) in an effort to improve operational effectiveness and achieve the aim of a cost ratio of 5% of written premiums between now and the end of 2007.

The group also intends to continue with further cost reductions which could see as many as 220 job cuts in an effort to improve its expense ratio. But with the expectation of the return of old clients there are concerns as to whether it will have the capacity to cope with any influx of new business.

Rivaldi also highlighted other areas for potential cost-cutting. “There are large areas of potential cost reduction and streamlining within the group to reflect that much reduced scale that are achievable by the end of 2007. It is a sensitive issue but it's not all about headcount reduction and there are a lot of other areas the group can tackle.”